Leverage insight in consumer purchasing behavior to drive sales

Consumer confidence, the general measure of consumers’ economic optimism or pessimism, fell 30 percent from February to April. As businesses began shutting down and people began losing their jobs, they became fearful, which caused an unusually rapid decline in confidence to the lowest level the U.S. has seen since 2011.

While that news should be a cause for concern among retailers, data analytics can help retailers better understand consumer purchasing behaviors and appeal to the changing sentiments of their specific customers to maintain, or even increase, sales.

Smart Business spoke with Jonathan Poeder, director of data analytics at Clark Schaefer Hackett, about the pandemic’s effect on consumer behaviors and what retailers can do to meet new consumer demands.

How is unemployment driving purchasing behavior?

We’ve had a historic rise in unemployment with over 40 million people losing their jobs since mid-March, which brought the national unemployment rate to 13.3 percent in May. That’s really driving consumers to reduce their spending and seek out value.

Research has shown half of U.S. consumers have been reducing their spending. We also see evidence of an increase in value-conscious behavior in the consumer packaged goods market, which is driving up sales of private label products about 19 percent year over year. There was already an upward deterministic trend of private label sales, but it has been accelerated by the pandemic.

There has also been a large shift away from brick-and-mortar toward e-commerce. Some estimates expect brick-and-mortar retail sales will drop by about 14 percent for 2020 and e-commerce sales will increase by about 18 percent.

Historically, consumer sentiment follows closely with economic conditions. The expectation is that, as the economy recovers, consumer sentiment will become more positive. Depending on how things unfold, it could get worse before it gets better. COVID-19 infections are spiking, which may bring another round of closures that could exacerbate consumers’ pessimistic views. Furthermore, in terms of purchasing behavior, there is data that suggest consumers will maintain cost-conscious behavior in a post-COVID economy.

How can individual retailers identify changes in their customers’ behaviors?

National trends are relevant, but it’s good to look at certain characteristics that drive purchasing behavior within individual retailers. People are making fewer trips when they go shopping, so managing inventory is very important. Customers want to feel appreciated, which means retailers should continue recognizing and rewarding loyalty even during a difficult time. Safety is top of mind. Retailers can benefit by having curbside pickup and other options for contactless shopping.

Convenience is key, which means meeting shoppers where they want to shop. That could mean transitioning to an e-commerce platform or providing other ways to make shopping easy for customers. Keep customers’ price sensitivity in mind and find ways to provide value within their budget.

How can retailers use data to stay on top of changing consumer sentiment?

The very first step for retailers is to make sure they have clean data as a foundation for analysis. That foundation can then support business intelligence tools — software that connects their data to create dashboards, or automated reports. The dashboards include key performance indicators and data visualizations that tell retailers how their business is doing in real time.

The next level is incorporating predictive analytics, which uses sophisticated algorithms and machine learning to generate predictions about the future. That enables retailers to determine which customers to target with promotions to drive the greatest incremental revenue, or to predict how much inventory should be kept on hand.

Many retailers don’t have the budget or skillset to take full advantage of the analytical tools and methodologies out there. Fortunately, there are service providers who specialize in data analysis. They can help retailers analyze all aspects of the customer experience and identify strategies to drive more positive purchasing behaviors during a difficult time.

Insights Accounting is brought to you by Clark Schaefer Hackett

Top HR issues employers need to be thinking about

As workplaces have shifted into virtual mode, human resource priorities have shifted, as well, says Renee West, SHRM-SCP, PHR, senior human resource manager at Rea & Associates.

“Topics have trended differently in response to COVID-19, and employers need to have certain measures in place from an HR compliance standpoint,” she says.

Smart Business spoke with West about how to comply with coronavirus-related regulations and other HR topics that should be top of mind for employers.

What should employers be doing in response to the pandemic?

No. 1, employers need to be compliant with COVID-19 regulations. Update employee handbooks to reflect the current situation. Comply with safety recommendations to ensure safe re-entry into the workplace. Educate employees about staying safe. Compliance is a huge piece of this right now.
Another piece is understanding the Families First Coronavirus Response Act as it relates to paid leave; employees with child care issues can take leave up to certain periods of time at certain rates of pay.

And employers that never allowed working remotely need to be flexible. Look at how you structure the workday. How can you be flexible but still have employees be productive? Consider work-sharing or bringing back employees on a rotating schedule. Think outside the box of the traditional work day.

What should employers do to help employees with their mental health and well-being?

Companies need to provide resources, through an employee assistance program or some other means. Employees need to understand it’s OK if they’re having anxiety and need help. Even before coronavirus, the ability to balance work and life was difficult. Understand what challenges employees are facing working with children at home. Supporting employee well-being is crucial to them being productive and knowing the company cares about them.

Mental health can affect performance and quality of work. If someone is struggling, they may call off more often and put out an inferior product, which can be costly.

What do employers need to think about regarding retention and recruitment?

COVID-19 has caused recruiting to look very different. Interviews are being done via phone or online job fairs. Given the market, you need to find different ways to recruit.

The flip side is retention. Employers struggle with what benefits to offer to ensure employees stay, to improve consistency of product. Employees can leave any time, and if people have skills you want to retain, it’s important they’re happy.

How important is it for employers to consider diversity, equity and inclusion?

This is critical. Look at what you’re doing to ensure these things are addressed every day. A recent Supreme Court ruling expanded protected classes to include LGBTQ employees. Define diversity and inclusion, and make sure your recruiting and evaluation processes are diverse and your compensation is equitable.

Update your policies, and train employees on them. What policies do you have regarding harassment training? What about diversity training? What do employees do if they have a concern?

Too many employers dismiss training on these issues, but any employee can come forward at any time. It just takes one case, and if you don’t have policies in place, one lawsuit can easily put you out of business.

What are you hearing in the marketplace?

I’m hearing a lot about balancing, employees who need to take leave and how to comply with regulations. People want to do the right thing, but things change every day with new guidelines. It’s important to stay up to date and current. The legislation never stops, and businesses struggle with how to keep up and still get their product out the door.

Work with a trusted adviser, and listen to trusted sources like your state government, state department of labor, the CDC, the EEOC and your chamber of commerce. To be effective, you need to get information from credible sources.

Insights Accounting is brought to you by Rea & Associates

How the CARES Act impacts benefit plans for both employees and employers

With the economy reeling from the COVID-19 pandemic, businesses closed and millions of employees out of work, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) is offering financial relief to both businesses and individuals.

Under certain circumstances, the act gives employees easier access to funds in their defined contribution plans. In addition, employers have delayed obligations regarding pension contributions, and there is less of a financial burden for coronavirus-related health care.

“This is relief provided by the government to address some issues that individuals and businesses are facing with the pandemic,” says George P. Pickard, CPA, MSA, principal at Ciuni & Panichi Inc.

Smart Business spoke with Pickard about the benefits aspects of the CARES Act, who qualifies and how to take advantage of its provisions.

Who qualifies for relief under the CARES Act?

If you have been diagnosed with COVID-19, or a spouse or dependent is diagnosed, you qualify. In addition, if you have experienced financial consequences because of a furlough, layoff, reduced hours or quarantine, because your company has closed, or because you are unable to work due to a lack of childcare, you can benefit from its provisions.

What are the changes to the rules for accessing funds in 401(k)s, 403(b)s, ESOPs, SEPs and other plans?

Previously, there were restrictions on how and when you could withdraw funds. While you could access money before turning 59½, in addition to paying taxes on those funds, there was a 10 percent penalty. Under the CARES Act, that withdrawal, up to $100,000, is considered a coronavirus-related distribution and the penalty is waived. In addition, the withdrawal will be taxed as income over three years instead of one, but if you reinvest back into the fund within three years, you avoid the tax altogether.

For 180 days following the March 27 start date, qualified individuals can take distributions of the lesser of $100,000 — up from $50,000 — or 100 percent of their vested balance, up from 50 percent. For 401(k) loans in place when the CARES Act was passed, for repayment due before Dec. 31, 2020, participants can have payroll payback suspended for one year, although interest continues to accrue.

For employees to take advantage of these changes, an amendment must be adopted by the plan. It can implement the changes immediately, but it must formalize amendments to allow employees to withdraw funds.

However, if you don’t absolutely need the money, don’t take it out. With funds down, you are going to realize losses. Leave the money in and allow the stock market to come back. And if you are able, start pumping more money into your funds in this down time.

How does the act impact minimum distribution requirements and health care plans?

Minimum distributions requirements are suspended for 2020, so if you don’t want to withdraw money in a down market, you can leave it in place until 2021.

The CARES Act follows the Families First Coronavirus Response Act (FFCRA). Under FFCRA, health plans are required to cover qualified preventive services and approved diagnostic testing, without any cost-sharing with the employee. The CARES Act expands the types of COVID-19 testing that must be covered.

What is the impact on employers regarding pension plan contributions?

If a business has a single employer plan, it is required to fund the plan to a certain minimum annual amount. Under the CARES Act, it can delay funding until Jan. 1, 2021, although interest on the deferred amount accumulates. This gives companies leeway to use that cash now to keep the business going and pay employees.

However, these plans rely heavily on investment returns to offset what they contribute, and if investments are down, companies could be liable for a very hefty amount.

Insights Accounting is brought to you by Cuini & Panichi Inc.

Focus on the short term in order to survive in the long term

The pandemic has put businesses in flux. Not only are they dealing with unprecedented disruption in the market and within their business, the uncertain outlook has made forecasting, even only a couple quarters out, difficult, if not impossible.
Fortunately, companies are coming out of a very strong economy and have strong balance sheets. That’s provided some insulation as they quickly learn to do business differently — for instance, transitioning employees to remote work. But with the state-enforced business closures and hesitancy by many to spend, revenues have taken a hit, which has created cash flow issues.

Even as Ohio starts to open back up, there’s still a lot of timidity brought on by concern for health and safety. People can go back to work but are required to follow guidelines, such as wearing a mask and maintaining a certain distance from coworkers and more. That’s made many employees understandably nervous and that’s affecting business.

Smart Business spoke with Sam Agresti, director of Brady Ware & Company, about some of the ways businesses can regain their footing and chart a path forward.

How do businesses start to get themselves on the road to recovery?

Companies should continue to right-size their business and focus on cash flows — managing liquidity was a key to business success during the Great Recession, and that will be key now. Then they need to continue to adapt to the necessity of doing business differently, especially considering there could be a second wave of COVID-19 infections that could force another round of restrictions on social gatherings that once again limit how business is conducted. Businesses need to quickly adapt to the lessons that have been learned over these last couple months about the new environment, with particular focus on managing expenses and finding creative ways to ramp revenues back up again.

Also, while culture may not seem like something businesses should focus on right now, it’s a critically important aspect of doing business during a time of high stress. As people come back to their offices, cracks in the culture can be exacerbated. If the culture is not managed, those fissures can cause further disruption, so it’s important to spend some time on maintaining and keeping the culture strong.

What should planning look like in this environment of uncertainty?

Businesses should have a very short-term focus and plan only for the next one to three months. Anything more than that and it may be wasted time as there’s too much disruption and uncertainty because it’s not at all clear what the fall will look like. Within a month to three months, companies can identify their focus and still be able to pivot if necessary. Staying flexible will be key as so much continues to change practically every day.

Who can help businesses as they begin to open back up?

Companies should reach out to their outside advisers and internal boards for advice. Many of these folks are working with lot of different businesses and have experienced a lot of different situations. They can offer insight as to how other businesses have dealt with these challenge. Businesses should also keep in touch with their banker to maintain that relationship, keeping them abreast of their situation and generally just stay out in front of financial issues as best they can.

It’s prudent for companies to talk monthly with their board and adviser group, more frequently — weekly or bi-weekly — if the business is in a dire situation. During March and April, it wasn’t uncommon for some businesses to maintain a standing weekly phone call with their advisers to discuss cash flows, forecasting and other pressing business matters.

CEOs can’t and shouldn’t try to manage this crisis alone. Get as broad a perspective on the situation as possible and be willing to try any feasible solution that will help the company stay relevant as customer needs, and the market itself, change.

Insights Accounting is brought to you by Brady Ware & Company

Explore operations to rein in expenses, map a path forward

With so much change happening in the market, businesses are trying their best to manage the day to day and plan a path forward. But there is only so much businesses can affect when it comes to their financial performance.

Many companies have their attention focused on managing expenses and finding ways to keep costs down, because that’s about all that’s within their power to fully control. However, Phil Hurak, a shareholder at Clark Schaefer Hackett, warns that while survival is critical, companies should be careful not to undermine their long-term performance in the name of short-term savings.

Smart Business spoke with Hurak about how businesses can explore operations to both reduce expenses and begin to plot a path forward.

How can businesses identify cost-reduction opportunities?

Businesses should create a cross-functional team from key areas of operation — technology, HR, supply chain and sales, for instance — to identify issues and opportunities within each of those functions. Then, overlay those findings with the short- and long-term strategic vision of the company, along with current imperatives such as cost reductions or enhanced profitability. This should produce an evaluation that will inform the strategic vision and avoid missteps that could undermine the company’s long-term efforts. For example, it might seem that one easy way to increase profitability in the short term would be to eliminate all research and development. That might bring immediate cost reduction benefits, but it would likely harm the company’s long-term strategic direction. Looking through every option with that strategic vision in mind is going to be important as companies work to responsibly reduce expenses.

How can companies consider the long-term view when the short-term picture is so fuzzy?

Businesses have tended to take a 30-60-90 view, and then consider the good, better and best scenarios as they operate under extreme uncertainty. For example, they’re looking at potential decreases in revenue of between 10 and 50 percent. Whichever reality manifests will drive different decisions and activities. But businesses really don’t know what the future is going to look like from a top-line revenue standpoint. So in the short run, they’re establishing a matrix of options, contemplating the potential impact within each of those scenarios and then outlining plans that would manage the associated expenses and other cost investments for each outcome.

What can tax benefit optimization offer companies right now?

Looking through an income, cash flow or profitability statement, the tax line is often one of the largest expenses companies bear. Certainly, payroll and possibly real estate are significant costs, but taxes can have a profound effect on profitability. Federal income tax; sales, payroll and property tax; excise and state taxes; and others can add up to be one of the largest expenses of an organization. Therefore, tax benefit optimization is an expense line that can and should be actively managed to maximize cash flow and profitability.

For those who were awarded the PPP loans, what should they be thinking about and preparing for now?

Companies now should be looking into how they can prepare the documentation that maximizes the forgiveness of the Paycheck Protection Program (PPP) loan. And there has been some guidance from the SBA around its plans to audit and review loans. While current guidance says loans over $2 million will receive an audit, companies that received loans under that amount will need to substantiate and document how those loans were used to receive forgiveness. Maximizing forgiveness and establishing a process for documentation are most critical for businesses.

In a very short time, there have been changes to every aspect of commerce and communication. No one business or individual can have all the answers as to how these challenges can be successfully navigated. Now is the time to reach out to advisers and work with strategic partners to collectively gather the best available information and develop a plan.

Insights Accounting is brought to you by Clark Schaefer Hackett

How to inventory threats to build critical IT defenses

From time to time, it’s healthy for companies to identify threats that are unique to their business and what might happen if one of those threats — a cyberattack that compromises customer payment information — manifested.

It’s also prudent for companies to understand what frontline defenses they have (or don’t have) to prevent such threats from impacting their business. Often these are IT systems housing critical data or supporting vital networks.

The recent increase of remote employees has added a layer of risk. Now is a good time to perform a risk assessment to ensure critical data and networks are secure.

Smart Business spoke with Brian Garland, a manager at Rea & Associates, about risk assessments and IT audits, and how the two work together to mitigate threats and their impact.

How do risk assessments and IT audits work together?
Risk assessments should be viewed as a strategic initiative, one that helps define the risk appetite clearly for the company in relation to the key information systems it needs to protect. They help companies understand what’s important to protect and why on a proactive basis, and what the fallout would be if they fail.

In a mature security environment, they’re followed up by IT audits, which determine if the systems and controls that are in place are functioning appropriately to stay within a company’s defined risk tolerances and meet whatever regulatory requirements they might have.

Typically, risk assessments are done annually, especially in environments that contain regulated data. However, any time a company has significant system changes or changes in its environment — the abrupt shift to a remote work environment, for example — it’s a good idea to run an assessment so companies can safeguard their assets appropriately.

How do IT audits map to regulatory compliance?
In regulated industries — banking and health care, for instance — or for companies that accept credit card data, IT audits provide evidence of the company’s compliance with the control requirements in place and establish that there’s an ongoing compliance environment. Companies that face something like a cyberbreach but have documentation of an annual IT audit have, at the very least, proof of an effort to demonstrate and maintain compliance.

With employees now largely working from home, companies need to be cognizant of the security impacts of the technology solution that they choose to make available to their employees. For instance, the decision to allow employees to utilize either an RDP or VPN solution for access to company resources should be weighed specifically by the technology’s potential impact on data confidentiality, integrity and availability. Whatever the situation and the tech used, it’s really about being aware of the potential threats, vulnerabilities and resulting risks, and ensuring that the right software tools, policies and procedures are in place to work securely.

How should companies apply what they’ve learned from an IT risk assessment?
The risk assessment process should give a clear sense of the current IT environment and controls in place, the estimated likelihood and impact of contemporary threats, and where gaps in controls exist that present significant risk. For companies without a security framework already in place, a risk assessment should lead to a list of the controls to be implemented to protect the network and data.

It should also give a sense of how a company is prepared to respond to an event that could shut it down for days or weeks at a time and what that impact might look like.

There should be documented policies and procedures in place to govern IT systems and the underlying data, outlining which activities are permitted by the company. These policies form the basis for the company’s data security program and help demonstrate the control environment in place and its alignment with any regulatory compliance requirements for data security impacting the company. Those policies and procedures should be reviewed and tested annually to make sure they cover all systems, processes and data elements considered critical to the business.

By having a clear understanding of the current risk environment, companies can spend their security resources intelligently.

Insights Accounting is brought to you by Rea & Associates



Why tested business continuity plans are important in a crisis

A business continuity plan is a set of procedures for maintaining business functions or quickly getting them back up and running in the event of some sort of major disruption — a natural disaster, loss of power, cyberattack or a pandemic.

“All businesses should have a business continuity plan because every one of them could be affected by disruptions,” says Carly Devlin, managing director, Clark Schaefer Consulting. “Without a business continuity plan, it could take longer than necessary to recover or the business might not recover at all. The pandemic has been a test for all businesses, and already there are organizations that are likely not able to come back when this ends.”

Smart Business spoke with Devlin about business continuity plans, what they should include and how to ensure they’re helpful when a disaster strikes.

What are the core components of an effective business continuity plan?

For a business continuity plan to be effective, a business impact analysis is required. That’s a process for identifying key business areas within an organization and their critical functions to devise a plan that outlines how each will operate in the event of a major disruption.

The next aspect of a business impact analysis is identifying potential losses — usually categorized into financial, legal, reputational and regulatory losses — and trying to understand what impact those losses would have on the organization over different lengths of time. At the same time, interdependencies between IT systems and those critical business functions should be identified. A recovery time objective tests how quickly each business function and IT system needs to be back up and running before unacceptable losses occur. At the end of the process, companies will better understand how to prioritize recovery efforts.

The third component is continuity procedures, which focus on contingency plans for people and processes in the event of various interruptions. That amounts to a lot of ‘what if’ scenarios and making sure that, for each of those, the business could continue operating while minimizing unacceptable losses.

How have business continuity plans performed so far during the pandemic?

There have been mixed results. Organizations that have more mature business continuity plans were better able to utilize their plans to transition their employees to work remotely. Organizations that didn’t have a mature business continuity plan have tended to struggle through the transition.

We’ve also seen a lot of organizations have a very general or high-level business continuity plan that doesn’t offer specific steps to take in the event of a disaster. That’s because many organizations have never tested their business continuity plan, which is the only way to measure the effectiveness of the plan. Organizations are now learning in hindsight from the shortcomings of their plans and are hopefully updating their plans so that they’re better prepared in the future.

What tools should businesses use to develop better business continuity plans?

There are various tools to help with business continuity planning. Some are free, such as online checklists and templates, and others have a cost associated with them. Some CPA and business advisory firms can help organizations with business continuity planning. They can help build a plan from scratch, update an existing plan or help with implementing and socializing the plan so that all the stakeholders involved clearly understand their role in its execution. Firms can also help test the plan using, for example, tabletop exercises that run through and poke holes in it to find the flaws.

A business impact analysis is a critical first step in developing a business continuity plan. You can’t effectively recover processes and systems without understanding which of them are critical, so the response can be prioritized and recovery can begin. Don’t forget to test, because too often, organizations discover at the worst possible time that their plans are ineffective or unrealistic.

Insights Accounting is brought to you by Clark Schaefer Hackett

Public filings offer nonprofits a chance to tell their story to potential donors

Form 990 is a required filing for many nonprofits and, importantly, offers a lot of room to go into great detail about the organization. That is important because the forms are accessible to the general public. This makes 990 a mechanism for connecting with, and passing on, information to the general public, as well as donors, board members and volunteers. In addition, rating agencies such as Charity Navigator rate nonprofits based on information reflected in the 990.

“It’s not just a required filing,” says Herzl Ginsburg, a senior manager at Ciuni & Panichi, “it’s also a messaging instrument for nonprofits.”

Smart Business spoke with Ginsburg about how nonprofits can maximize the opportunity Form 990 offers.

Why should nonprofits detail their accomplishments on the 990 form?

The 990 offers an opportunity for nonprofits to detail their program accomplishments and present supporting metrics for everybody — the general public, resource providers, ambassadors, board, staff, volunteers — so they can all reference these accomplishments as they talk with their community and their peers. It shows a nonprofit’s value and why it’s important for others to support it. Not every organization needs to go into great detail about their accomplishments on a 990. In some cases, a nonprofit is not relying on the general public for contributions — its funding comes from other sources. But for nonprofits that do rely on the public for donations, it’s important to take full advantage of the opportunity.

How can answers to the governance and policies questions on the 990 offer insights as to areas for improvement?

The nonprofit’s Board, in its role of governance, should review the 990. The 990 has a number of questions related to governance policies and procedures. For example, whether or not the organization has a whistleblower policy is a ‘yes/no’ question on the 990. The Board may view the context of this and other questions as best practices. Any ‘no’ responses should be evaluated as opportunities for implementing a best practice and how the omission of a particular policy may be viewed by stakeholders.

Why should nonprofits talk with their tax preparer ahead of the filing?

In general, communication allows for a smooth process and an opportunity for highlighting changes to the form 990 and addressing questions a nonprofit may have around them. More than that, every so often a nonprofit will have a non-recurring change, such as offering a new program or making a change of leadership, which will get reported on the Form 990. Discussion around these types of changes allows for time to plan how best to capture them on the form, reporting them accurately while recognizing that the Form 990 is telling your story to your stakeholders.

What should those who have paid tax under the parking tax regulations through a 990T  know now?

There was a period of time when employer-provided parking benefits by tax-exempt organizations would lead to a tax on an organization. Nonprofits were filing a 990T to document that expense. Congress repealed IRC Section 512(a)(7), which was imposing the tax on nonprofits, retroactive to 2017. Nonprofit organizations should be filing an amended 990T for the years the organization paid this tax to get their refund.

What is the importance of reviewing and monitoring Charity Navigator and GuideStar profiles?

More donors and supporters are looking for information about organizations, and Charity Navigator and GuideStar are two of the resources that are often used. They use available information to rate organizations relative to other nonprofits. Organizations should look into what else is going into these ratings that could be changed to improve them. Potential donors are using these resources to determine where they allocate their support, so understanding the ratings and exploring what opportunities there are to improve those ratings is very important for governance of the organization.

The 990s are more than just required filing. They present an opportunity for organizations to spread their message and begin to make the case for contributions.

Insights Accounting is brought to you by Ciuni & Panichi, Inc.

Common issues new business owners face and how to avoid them

Entrepreneurship is not for the weak or weary. It’s rewarding but it’s tough. It offers business owners the potential to be the highest paid person, but only if they can run a business successfully. And that typically means getting outside their comfort zone.

“Where entrepreneurs often get tripped up is when they fail to realize they are not a hair stylist but an owner of the salon,” says Betty L Collins, CPA, a director at Brady Ware & Company. “Entrepreneurs get so wrapped up in working in the business that working on the business is sometimes an afterthought.”

Smart Business spoke with Collins about the obstacles to success small business owners face and how they can learn to overcome them.

What are the issues small business owners have the most difficulty moving their business beyond?

There are several issues small businesses encounter that make it difficult to take it to the next level. For example, entrepreneurs often make mistakes when it comes to capital. They might leverage the wrong debt or have trouble securing a loan. Jumping in despite a specious funding situation can be dangerous and will make the first three to five years harder than they will already be.

Profits need to be used to pay down debt, reinvest in the business and pay the owner a salary, so entrepreneurs need to know if their product or service is profitable. That means having a deep understanding the company’s financials, something that could require a greater understanding of finances than they currently have.

Small business owners tend to make the mistake of waiting for a crisis to happen before they involve the help of outside experts, or hire family and friends to do the work that would be better suited to experienced professionals. This can spring from a general lack of trust or trusting too much the advice of family or professionals. It can also lead to unrecoverable mistakes.

How good are small businesses at self-diagnosis?

For owners, stepping back and assessing the company’s market position can be difficult when most of their time is wrapped up in the day-to-day business. Some owners have trouble facing their reality. They either fail to recognize or downplay the obstacles that are affecting their business, and that can have negative consequences.

It often takes input from others — outside professionals — to identify those obstacles. However, that comes with its own issues. For example, the owner might not have the money to pay someone for an assessment, they don’t know who to ask for help or they’re too proud to ask for help.

Just because the business owner is passionate about and capable of executing on their entrepreneurial idea doesn’t mean they’re capable of managing the bigger picture. Organizational execution means delegating and deferring, and that’s very scary for some. The bigger picture- approach takes discipline and focus. It also means setting aside time, which means reorganizing priorities.

What services should small business owners look for that would help them better identify and remove obstacles?

Small business owners would benefit from understanding that they need a banker, not just a bank. A banker can help a small business owner understand capital and how to be ‘lendable’ in all phases of the business.

Additionally, not only do business owners need an attorney and an accountant, but those professionals need to know each other. Through setup, strategy, transition and selling, those professional need to work as a team on behalf of the owner.

Unfortunately, many owners don’t know how to choose an adviser, so they may instead rely on family or friends. Or, when reaching out for professional help, they often first ask, ‘How much?’ rather than interviewing to determine the professional’s level of expertise. It takes a pursuit with an open mind to find professionals who have the right outside perspective. But doing so could save owners a lot of hassle, or save their business altogether.

Insights Accounting is brought to you by Brady Ware & Co.

How business owners can maximize value when selling their company

Business owners build and nurture their business for years. And when the time comes for them to walk away, owners often overlook the importance of due diligence work and preparation. Sellers, however, often aren’t sure what buyers are actually looking for, and that can affect outcomes. Ignoring or de-emphasizing tax due diligence can result in significant transaction erosion, or worse: failed transactions, lost time and distraction from normal business operations.

“By understanding what buyers are looking for and how transactions might be structured, sellers can put themselves in a position to court buyers who will provide the value the seller wants in the end,” says Keri Boergert, a principal with Clark Schaefer Hackett CPAs & Advisors.

Smart Business spoke with Boergert about sale types, due diligence and what buyers are looking for in an acquisition.

What is the difference between an asset deal and a stock deal when selling a company?

In a stock deal, the entire company is sold. That means everything transfers to the buyer, including all the existing tax liability risk. Stock deals are used when a seller wants to get rid of the entire business. Sellers would prefer a stock deal.

Companies that have significant liabilities, however, may not be able to find a buyer for a stock sale. That’s because, from a buyer’s perspective, the tax liability is often a significant factor in their decision. In an asset deal, typically only certain tax liabilities transfer to a buyer. 

Sellers might use an asset sale if they’re unable to get the value they want from the sale of the company through a stock sale. 

How do buyers and sellers prepare for a deal, whether stock or asset?

All deals involve financial due diligence and an exploration of the tax situation to determine the company’s fair value and the risk to the buyer. The process is also a factor in determining whether the best approach is a stock or asset sale.

What are the benefits of due diligence for sellers?

The benefits of tax due diligence for sellers are myriad. The seller can optimize the value of the transaction, minimize exposure to risks and liabilities, assess oversights before entertaining buyers, gain increased negotiation power, retain better control and credibility throughout the transaction cycle and have a higher probability of closing the transaction. 

What might sellers uncover in a due diligence process?

Tax attributes, for one. This analysis can be valuable to a seller. Attributes such as net operating loss carryovers, business credit carryovers, minimum tax credits and capital losses should be considered.

There are other tax considerations, as well. Employment tax can be a risk — sellers should know the particulars of how their employees are classified. Sales and use tax is an area to watch — sellers need to understand the post-Wayfair particulars of their state’s online sales tax and economic nexus laws. Lastly, Wayfair has also had implications on income tax. Both sellers and buyers should be aware of relevant economic nexus standards for income, franchise and gross receipts tax in their state(s).

How can sellers get the most value in a transaction?

For sellers concerned about moving on from their business, due diligence can seem unnecessary. But by identifying and understanding their risks, the seller has a chance to clean them up. That gives sellers the best chance to get the highest value for their company.

Sellers should work with an accounting firm that has a transaction advisory services team with a history of M&A transaction experience before going to market. They can put the company through tax and financial diligence to show the seller what buyers will see and deal with any issues well before a sale process.

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